Jack has a basis in a partnership interest of $300,000, including his $80,000 share of partnership debt. At the end of the current year, the partnership pays off its liabilities and makes a proportionate current (nonliquidating) distribution to its partners. Jack receives a parcel of land (partnership basis = $120,000, value = $135,000) and inventory (partnership basis = $160,000, value = $180,000). Following the distribution, what is Jack's basis in the land, inventory, and the partnership interest?
A) $120,000 basis in land, $160,000 basis in inventory, $20,000 basis in partnership.
B) $40,000 basis in land, $180,000 basis in inventory, $0 basis in partnership.
C) $60,000 basis in land, $160,000 basis in inventory, $0 basis in partnership.
D) $135,000 basis in land, $165,000 basis in inventory? $0 basis in partnership.
E) $60,000 basis in land, $160,000 basis in inventory? $80,000 basis in partnership.

Question

Quizplus · Accepted Answer

Since Jack's basis in the partnership interest is $300,000 and he received a proportionate distribution of the partnership assets, his share of the distribution will be $300,000. Jack received a parcel of land with a value of $135,000 and an inventory with a value of $180,000.
The basis in the land will be Jack's share of the partnership's basis in the land, which is $120,000, since Jack received a proportionate distribution. Therefore, Jack's basis in the land is $60,000 (which is 50% of the $120,000 basis).
Similarly, the basis in the inventory will be Jack's share of the partnership's basis in the inventory, which is $160,000. Therefore, Jack's basis in the inventory is $160,000 (which is 100% of the $160,000 basis).
Finally, since the partnership paid off its liabilities and made a proportionate distribution to its partners, Jack's basis in the partnership interest is reduced to $0.

Jack Has a Basis in a Partnership Interest of $300,000